CFTC Further Extends Relief to SEFs from Certain Uncleared Swap Recordkeeping Requirements | Practical Law

CFTC Further Extends Relief to SEFs from Certain Uncleared Swap Recordkeeping Requirements | Practical Law

The CFTC has further extended relief to SEFs from certain requirements covering previously executed swap agreements incorporated by reference into SEF confirmations for uncleared swaps.

CFTC Further Extends Relief to SEFs from Certain Uncleared Swap Recordkeeping Requirements

by Practical Law Finance
Published on 23 Mar 2016 • USA (National/Federal)
The CFTC has further extended relief to SEFs from certain requirements covering previously executed swap agreements incorporated by reference into SEF confirmations for uncleared swaps.
On March 14, 2016, the CFTC issued No-action Letter 16-25 (No-Action 16-25), further extending relief for swap execution facilities (SEFs) from the requirement under CFTC Regulation 37.6(b) (17 CFR § 37.6(b)) that SEFs obtain and retain copies of any previously executed swap agreements, such as an ISDA Master Agreement, incorporated into a transaction confirmations for an uncleared swap transaction executed on or under the rules of the SEF.
The relief also provides relief from the requirement that SEFs maintain copies of the incorporated underlying documents in accordance with CFTC Regulations 37.1000 (17 CFR § 37.1000), 37.1001 (17 CFR § 37.1001) and 45.2(a) (17 CFR § 45.2(a)).
The relief extends until the earlier of:
  • 11:59 pm March 31, 2017; or
  • the effective date of any revised CFTC regulations that establish a permanent SEF confirmation solution.
In response to market concerns over the logistical and operational burdens associated with maintaining these records, the CFTC originally granted relief from this requirement under No-Action Letter 14-108 (see Legal Update, No-action Relief on SEF Transaction Confirmations Issued by CFTC), which was extended under No-Action Letter 15-25 (No-Action 15-25).
Additionally under No-Action 15-25, the CFTC granted relief from the requirement under CFTC Regulation 45.3(a) that SEFs report swap creation data to the CFTC as soon as technologically practicable (17 CFR § 45.3(a)) (see Legal Update, No-Action Relief for SEF Confirmation and Recordkeeping Requirements). The relief described above is now further extended under No-Action 16-25.
The relief granted under No-Action 16-25 applies only to uncleared swaps executed on, or pursuant to the rules of, a SEF and requires that:
  • The SEF's rulebook requires that:
    • the SEF's transaction confirmation states, where applicable, that it incorporates by reference the terms of the previously negotiated underlying agreements between the counterparties;
    • if any inconsistency between a SEF confirmation and the underlying previously negotiated freestanding agreements exist, the terms of the confirmation legally supersede all other agreements;
    • the terms of the SEF confirmation state that its terms legally supersedes any other agreements;
    • its participants provide copies of the underlying previously negotiated freestanding agreements to the SEF upon request;
    • the SEF request from its participants the underlying previously negotiated freestanding agreements that the SEF requests; and
    • the SEF furnish those documents to the CFTC when available.
  • The SEF continue to report all primary economic terms (PET) data as required under CFTC Regulation 45.3(a)(1) (17 CFR § 45.3(a)(1)). For the purposes of this relief, the data that a SEF must continue to report under CFTC Regulation 45.3(a)(1) includes, at a minimum:
    • all PET data required to be reported under Part 45 of the CFTC regulations, including specific terms listed in the Tables of Minimum Primary Economic Terms Data in Appendix 1 to CFTC Regulation Part 45, as applicable to the particular swap (see The Dodd-Frank Act: CFTC Swap Data Reporting Required Data Field Checklist: Primary Economic Terms (PET) to Be Reported under Final "SDR" Rules (17 CFR Part 45));
    • all swap data that is readily available to the SEF and collected by the SEF currently in the regular course of facilitating the execution of transactions on its facility (or in the regular course of accepting transactions that counterparties execute off of the SEF facility pursuant to the rules of the SEF);
    • all swap data the SEF currently reports to any swap data repository (SDR) in the regular course of reporting swaps under CFTC regulations; and
    • all swap data the SEF includes in the confirmation it sends to swap counterparties under CFTC Regulation 37.6(b) (17 CFR § 37.6(b)) that is not incorporated by reference from the underlying previously negotiated freestanding agreements.
For purposes of this relief, as of March 14, 2016, the SEF may not modify its trading systems or protocols, its reporting to an SDR (including reporting via third-part service providers), nor its confirmation process under CFTC Regulation 37.6(b) (17 CFR § 37.6(b)) in a way that reduces the amount of PET data it reports. The CFTC notes that a SEF may increase the amount of PET data it reports.